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CIT Announces First Quarter 2018 Results

First quarter net income available to common shareholders of $97 million or $0.74 per diluted common share; income from continuing operations available to common shareholders of $104 million or $0.79 per diluted common share

Excluding noteworthy items, first quarter income from continuing operations available to common shareholders1 of $97 million or $0.74 per diluted common share

Average loans and leases grew 1.7% compared to the prior quarter. Average loans and leases in core portfolios2 grew 2.3%

Received non-objection for amended 2017 capital plan, increasing approved common equity distributions to up to $900 million for 1H18

CIT Group Inc. (CIT) today reported first quarter net income available to common shareholders of $97 million or $0.74 per diluted common share, compared to net income available to common shareholders of $180 million or $0.88 per diluted common share for the year-ago quarter. Income from continuing operations available to common shareholders for the first quarter was $104 million or $0.79 per diluted common share, compared to income available to common shareholders of $78 million or $0.38 per diluted common share in the year-ago quarter.

Income from continuing operations available to common shareholders excluding noteworthy items for the first quarter was $97 million or $0.74 per diluted common share, compared to $109 million or $0.54 per diluted common share in the year-ago quarter, as a decline in net finance revenue and an increase in the provision for credit losses were partially offset by lower operating expenses and higher other non-interest income. The increase in income from continuing operations excluding noteworthy items per diluted common share reflects the decline in the average number of diluted common shares outstanding due to significant share repurchases over the past four quarters more than offsetting the decline in income.

"In the first quarter, we posted solid growth in our core businesses and continued to make significant progress on our strategic plan," said CIT Chairwoman and Chief Executive Officer Ellen R. Alemany. "Origination volumes increased significantly year-over-year, and the direct bank franchise continued to grow, adding $1.5 billion in deposits and more than 28,000 new customers. Affecting results was a single commercial exposure, and excluding that, credit performance was generally stable and credit reserves remain strong."

Alemany continued, "We also made strides in optimizing our capital structure through the repurchase of $195 million of common stock, and we remain focused on advancing our strategic plan and achieving our profitability targets."

Return on Tangible Common Equity (ROTCE)3 for continuing operations was 6.8%. ROTCE for continuing operations excluding noteworthy items3 was 6.4%. Tangible book value per common share at Mar. 31, 2018 was $49.25. The preliminary Common Equity Tier 1 Capital ratio decreased to 14.0%, and the preliminary Total Capital ratio increased to 16.7%, at Mar. 31, 2018. These capital ratios are calculated under the fully phased-in regulatory capital rules.

Financial results for the first quarter in continuing operations included a noteworthy item:

$7 million (after tax) ($0.05 per diluted common share) benefit in net finance revenue from the suspension of the depreciation of assets related to NACCO that are in assets held for sale.

Selected Financial Highlights

Select Financial Highlights

1Q18 change* from

($ in millions)

1Q18

4Q17

1Q17

4Q17

1Q17

Net finance revenue

$

391

$

399

$

417

$

(9)

-2

%

$

(26)

-6

%

Non-interest income

105

137

79

(32)

-24

%

26

32

%

Total net revenue

495

537

496

(41)

-8

%

(1)

0

%

Non-interest expenses

281

561

312

(280)

-50

%

(30)

-10

%

Income (loss) from continuing operations before credit provision

214

(25)

184

239

NM

30

16

%

Provision for credit losses

69

30

50

38

NM

19

38

%

Income (loss) from continuing operations before benefit (provision) for income taxes

145

(55)

134

200

NM

11

8

%

Provision (benefit) for income taxes

41

28

56

14

49

%

(15)

-27

%

Income (loss) from continuing operations

104

(83)

78

187

NM

25

33

%

(Loss) income from discontinued operations, net of taxes

(7)

(5)

102

(2)

-29

%

(108)

NM

Net income (loss)

97

(88)

180

185

NM

(83)

-46

%

Preferred Dividends

-

10

-

(10)

-100

%

-

NM

Net income (loss) available to common shareholders

$

97

$

(98)

$

180

$

195

NM

$

(83)

-46

%

Income (loss) from continuing operations available to common shareholders

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

(2)Excludes noteworthy items and pro forma for capital reduction associated with Commercial Air sale that occurred in 2Q17. See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

(3)Ratios on fully phased-in basis.

Unless otherwise indicated, all references below relate to continuing operations. Discontinued operations in the first quarter consisted of Financial Freedom, our reverse mortgage servicing business for which we have a definitive agreement to sell, and our Business Air portfolio. In the year-ago quarter, discontinued operations also included Commercial Air, which was sold on April 4, 2017.

Income Statement Highlights:Income from continuing operations available to common shareholders excluding noteworthy items was $97 million compared to $130 million in the prior quarter, primarily reflecting an increase in credit costs.

Net Finance Revenue

Net Finance Revenue*

1Q18 change from

($ in millions)

1Q18

4Q17

1Q17

4Q17

1Q17

Interest income

$

451

$

448

$

456

$

4

1

%

$

(5)

-1

%

Rental income on operating leases

254

253

251

1

0

%

2

1

%

Depreciation on operating lease equipment

76

74

74

2

3

%

3

4

%

Maintenance and other operating lease expenses

57

58

54

(1)

-1

%

4

7

%

Net rental income on operating leases

120

120

124

(1)

0

%

(4)

-3

%

Interest expense

181

169

163

12

7

%

17

11

%

Net finance revenue

$

391

$

399

$

417

$

(9)

-2

%

$

(26)

-6

%

Average earning assets(1)

$

45,265

$

44,562

$

46,639

$

703

2

%

$

(1,374)

-3

%

Net finance margin

3.45

%

3.59

%

3.57

%

-13bps

-12bps

Excluding Noteworthy Items(1)

Net finance revenue

$

381

$

391

$

417

$

(9)

-2

%

$

(35)

-8

%

Average earning assets

$

45,265

$

44,562

$

46,639

$

703

2

%

$

(1,374)

-3

%

Net finance margin

3.37

%

3.51

%

3.57

%

-14bps

-20bps

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

* Certain balances may not sum due to rounding.

Net finance revenue4 was $391 million compared to $399 million in the prior quarter. Net finance revenue in the current and prior quarters included a $9 million benefit from the suspension of depreciation expense related to NACCO because its assets are included in assets held for sale. Excluding noteworthy items, net finance revenue4 was $381 million, compared to $391 million in the prior quarter, as lower purchase accounting accretion and higher deposit and borrowing costs were partially offset by higher interest income on loans and investments. Higher borrowing costs in the current quarter reflect the issuance in March of unsecured senior debt, which in April was used to refinance shorter-maturity unsecured senior debt, and Tier 2 qualifying subordinated debt. Net finance revenue in the current quarter includes approximately $2 million in negative carry from the unsecured senior debt issued in March 2018.

Net finance revenue as a percentage of average earning assets ("net finance margin4") excluding noteworthy items was 3.37%, a 14 bps decrease from 3.51% in the prior quarter. The decrease in net finance margin reflects the aforementioned drivers of the decline in net finance revenue and asset mix.

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

* Certain balances may not sum due to rounding.

Other non-interest income was $105 million compared to $137 million in the prior quarter. Other non-interest income in the prior quarter included a $29 million benefit in other revenues related to the cumulative effect of an accounting policy change for low income housing tax credit (LIHTC) investments. Excluding noteworthy items, total other non-interest income5 was $105 million in the current quarter, compared to $108 million in the prior quarter. Factoring commissions remained essentially unchanged, as increases in volumes continued to be offset by decreases in pricing. Fee income declined by $3 million, primarily due to a decrease in capital markets fees, which was strong in the prior quarter. Gains on investment securities, net of impairments, declined by $7 million, primarily driven by lower sales volume of investment securities in the current quarter.

In the year-ago quarter, noteworthy items in other non-interest income included an $8 million charge related to currency translation adjustments. Other non-interest income in the current quarter, excluding noteworthy items, increased by $17 million from the year-ago quarter, primarily driven by income from bank-owned life insurance (BOLI) and an increase in gains on asset sales.

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

* Certain balances may not sum due to rounding.

Operating expenses in the current and prior quarters included $6 million in intangible asset amortization. Operating expense in the prior quarter also included a $32 million restructuring charge. Operating expenses excluding noteworthy items and intangible asset amortization6 in the current quarter was $275 million, up from $266 million in the prior quarter, driven primarily by seasonal increases in compensation and benefits, higher FDIC insurance costs and a legal accrual related to Rail.

Operating expenses in the year-ago quarter included $15 million in restructuring charges and $6 million in intangible asset amortization. Compared to the year-ago quarter, operating expenses excluding noteworthy items and intangible asset amortization decreased $15 million or 5%, primarily reflecting lower professional fees and FDIC insurance costs, partially offset by higher advertising and marketing costs, primarily in Consumer Banking, and higher compensation and benefits expenses.

The net efficiency ratio6 increased to 56% compared to 50% in in the prior quarter. The net efficiency ratio excluding noteworthy items6 was 57%, compared to 53% in the prior quarter, driven by increases in both operating expenses and interest expense. Compared to the year-ago quarter, the net efficiency ratio excluding noteworthy items improved slightly from 58%, as the decrease in operating expenses was mostly offset by an increase in interest expense.

Income TaxesThe provision for income taxes in the current quarter of $41 million included an aggregate of $2 million in discrete tax expense. The provision for income taxes in the prior quarter of $28 million included an aggregate $26 million benefit from noteworthy items, including the impact of tax items related to NACCO, the change in accounting policy for LIHTC and U.S. tax reform, and an additional aggregate $22 million in discrete tax benefits from other tax adjustments, including the reversal of a valuation allowance related to a restructured international legal entity. The provision for income taxes in the year-ago quarter of $56 million included $14 million in deferred tax expense related to the restructuring of legal entities in preparation for the Commercial Air sale.

The effective tax rate in the current quarter was 28%. Excluding noteworthy items and discrete tax items, the effective tax rate was 27%. Excluding noteworthy items and discrete tax items, the effective tax rate in the prior and year-ago quarters was 39% and 32%, respectively. The decline in the effective tax rate is primarily driven by lower statutory income tax rates from U.S. tax reform, partially offset by the impact of the change in accounting method for the LIHTC investments, disallowance of FDIC insurance premiums and state income taxes.

Balance Sheet Highlights:Earning Assets

Earning Assets*

1Q18 change from

($ in millions)

1Q18

4Q17

1Q17

4Q17

1Q17

Loans (including assets held for sale)

$

30,540

$

30,210

$

30,254

$

330

1

%

$

286

1

%

Operating lease equipment, net (including assets held for sale)

7,988

7,906

7,517

81

1

%

471

6

%

Loans and leases

38,527

38,116

37,770

411

1

%

757

2

%

Interest-bearing cash

3,895

1,440

5,415

2,455

NM

(1,520)

-28

%

Investment securities and securities purchased under agreement to resell

6,161

6,620

4,476

(459)

-7

%

1,684

38

%

Indemnification asset

121

142

313

(22)

-15

%

(193)

-62

%

Credit balances of factoring clients

(1,549)

(1,469)

(1,547)

(80)

-5

%

(2)

0

%

Total earning assets(1)

$

47,155

$

44,850

$

46,428

$

2,305

5

%

$

727

2

%

Average earning assets(1)

$

45,265

$

44,562

$

46,639

$

703

2

%

$

(1,374)

-3

%

(1)See "Non-GAAP Measurements" at the end of this press release and beginning on page 26 for a reconciliation of non-GAAP to GAAP financial information and noteworthy items.

* Certain balances may not sum due to rounding.

Total earnings assets increased 5% compared to the prior quarter, primarily reflecting an increase in interest-bearing cash. Interest-bearing cash increased by $2.5 billion, primarily driven by the issuance of $1.0 billion in unsecured senior debt and $400 million in subordinated debt, along with the proceeds from growth in deposits and maturing investment securities. Most of the proceeds of the unsecured senior debt offering were used in April 2018 to redeem $883 million in other unsecured senior debt with shorter maturities. Total loans and leases increased 1% from the prior quarter and 2% from the year-ago quarter, primarily driven by growth in the Business Capital and Real Estate Finance divisions of Commercial Banking and our consumer lending businesses within Consumer Banking, partially offset by run-off of our legacy portfolios.

Average earning assets increased 2% from the prior quarter, primarily reflecting an increase in average loans and leases in Commercial Banking. Compared with the year-ago quarter, average earning assets declined $1.4 billion, or 3%, reflecting a decline in interest-bearing cash, along with run-off of legacy portfolios.

Cash and Investment SecuritiesInterest-bearing cash and investment securities (including securities purchased under agreements to resell) were $10.1 billion at Mar. 31, 2018, and consisted of $3.9 billion of interest-bearing cash and $6.2 billion of investment securities. In addition, there was approximately $0.2 billion of non-interest-bearing cash.

Of the interest-bearing cash and investment securities, $7.8 billion was at CIT Bank and $2.0 billion was at the financial holding company, while the remaining $0.3 billion consisted of amounts held at the operating subsidiaries and restricted balances.

Deposits and Borrowings

Deposits and Borrowings*

1Q18 change from

($ in millions)

1Q18

4Q17

1Q17

4Q17

1Q17

Noninterest-bearing checking

$

1,227

$

1,352

$

1,204

$

(126)

-9

%

$

23

2

%

Interest-bearing checking

2,618

2,653

3,237

(35)

-1

%

(619)

-19

%

Money market/Sweeps

6,269

5,076

6,903

1,193

24

%

(635)

-9

%

Savings

6,227

5,987

4,683

240

4

%

1,544

33

%

Time deposits

14,089

14,344

16,131

(255)

-2

%

(2,042)

-13

%

Other

165

158

178

7

4

%

(13)

-8

%

Total deposits

$

30,594

$

29,569

$

32,336

$

1,025

3

%

$

(1,742)

-5

%

Unsecured borrowings

$

5,127

$

3,738

$

10,601

$

1,389

37

%

$

(5,474)

-52

%

Secured borrowings

5,311

5,237

4,136

74

1

%

1,175

28

%

Total borrowings

$

10,437

$

8,974

$

14,736

$

1,463

16

%

$

(4,299)

-29

%

* Certain balances may not sum due to rounding.

Unsecured borrowings comprised 13% of the funding mix at Mar. 31, 2018, an increase from 10% at Dec. 31, 2017. The increase was driven by the aforementioned issuances of unsecured senior debt and subordinated debt in March 2018. On April 9, 2018, we redeemed $883 million in unsecured senior debt with the proceeds of the unsecured senior debt issuances, moving out the maturity profile of our total unsecured senior debt.

The weighted average coupon on our unsecured senior debt was 4.78% at Mar. 31, 2018, compared to 4.81% at Dec. 31, 2017. Pro forma for the unsecured senior debt redemption in April, the weighted average coupon on unsecured senior debt was 4.83%.

Deposits increased by 3% compared to the prior quarter and at Mar. 31, 2018, represented approximately 74% of CIT's funding compared to 77% at Dec. 31, 2017. Deposit growth in the online channel more than offset declines in higher-cost deposits in the brokered channel and certain deposits in the commercial channel. The loans and leases-to-deposits ratio at CIT Bank was 98% at Mar. 31, 2018 compared to 104% at Dec. 31, 2017. For CIT Group, the loans and leases-to-deposits ratio was 126% at Mar. 31, 2018 compared to 130% at Dec. 31, 2017.

The weighted average rate on average outstanding deposits in the current quarter increased 5 bps to 1.29% from 1.24% in the prior quarter and increased 13 bps from 1.16% in the year-ago quarter, primarily reflecting increases in the average Retail savings and money market account rate, partially offset by a reduction in higher-cost brokered and other deposits.

Secured borrowings increased 1% due to an increase in FHLB borrowings and comprised 13% of the funding mix at Mar. 31, 2018 compared to 13% at Dec. 31, 2017.